What is cargo insurance? Cover types and carrier liability

What does cargo insurance protect?

Cargo insurance is also called goods insurance or freight insurance in the market. It covers the risks of damage, loss and theft that the cargo may suffer between the place of loading and the place of delivery. What is insured is the cargo, not the vehicle. It can therefore be applied to sea, air, road and rail transport, and to multimodal transport combining them.

The policy is priced on the value of the cargo, the start and end points of the journey, the mode of transport, the packaging and the type of cover. The premium is generally calculated as a small percentage of the insured value. Because the rate varies with the type of cargo, the route and the cover, quoting a fixed figure would be misleading.

Why is the carrier’s liability not enough?

When cargo is damaged, the carrier is the first party that comes to mind. However, the carrier’s liability is limited by law, and this limit is often far below the value of the goods.

Transport	Basis	Carrier’s maximum liability
Domestic road	Turkish Commercial Code art. 882	8.33 Special Drawing Rights per kilogram of gross weight
Sea	Turkish Commercial Code art. 1186	666.67 SDR per package/unit or 2 SDR per kilogram (whichever is higher)
International road	CMR Convention	The Convention’s own per-kilogram limit
Air	Montreal Convention	Per-kilogram limit; reviewed periodically by ICAO

The Special Drawing Right (SDR) is the unit of account of the International Monetary Fund. Its Turkish lira equivalent is calculated, under the Turkish Commercial Code, from the value set by the Central Bank.

These limits depend on weight, not value. Example: 500 kg of electronics may be worth hundreds of thousands of liras, but the maximum compensation obtainable from the carrier in domestic road transport is limited to 500 × 8.33 SDR. In addition, the carrier may be released from liability entirely in cases such as force majeure or defective packaging. Cargo insurance closes the gap.

Cover types: Institute Cargo Clauses A, B, C

In international trade, cover is mostly arranged under the Institute Cargo Clauses of the London insurance market:

• Clause A — broad cover. Covers all risks except those expressly excluded in the policy. This is the appropriate choice for manufactured goods, machinery, electronics, textiles and fragile cargo.
• Clause B — intermediate cover. Covers the listed risks: in addition to the major casualties in C, such as earthquake, lightning, washing overboard by waves and entry of water into the vessel.
• Clause C — narrow cover. Covers only major casualties such as fire, explosion, sinking, stranding, collision and general average. It does not cover wetting, breakage or theft.

War and strikes risks are outside these three clauses and are added by separate clauses.

Who arranges insurance under Incoterms?

Of the 11 rules in Incoterms 2020, only two impose an insurance obligation on the seller:

• CIF: The seller arranges insurance with at least Clause C cover.
• CIP: The seller arranges insurance with at least Clause A cover.

Under both rules the minimum insured value is 110% of the contract price. Under the other nine rules, no one is obliged to insure. However, insurance is in the interest of whichever party the risk passes to. An importer buying FOB or EXW who does not arrange insurance has carried the cargo uninsured throughout the journey.

For details, see the Incoterms 2020 guide and the CIF delivery term pages.

Can insurance be taken out abroad?

Article 15 of Insurance Law No. 5684 provides, as a rule, that persons resident in Türkiye must insure their interests in Türkiye with insurance companies operating in Türkiye. The second paragraph of the same article lists cargo insurance for goods that are the subject of exports and imports among the exceptions to this rule. A CIF/CIP policy taken out by a seller abroad is therefore legally valid. Even so, it should be borne in mind that dealing with a foreign insurer in the event of damage may involve difficulties of language, time limits and surveyors.

How is the insured value determined?

The insured value is generally set as goods value + freight + expected profit margin. The common market practice is 110%, the same as the minimum rule under CIF/CIP. If the value is understated, underinsurance applies in the event of damage and compensation is reduced in the same proportion. The value on the invoice and the value on the policy should therefore be checked for consistency.

Companies that ship frequently use an open (floating) policy covering all shipments in a given period, instead of a separate policy for each cargo. Cover begins as each shipment is declared.

What to do if damage occurs

1. Check on delivery. If there is crushing, wetness or a seal problem on the packaging, a reservation (“received damaged”) is written on the delivery document.
2. Document. Photographs are taken; the cargo is not discarded or repaired.
3. Notify. Written notice to the carrier and notification to the insurer or agent are made the same day. Statutory and policy time limits are short.
4. Surveyor. The inspection by the surveyor appointed by the insurer is awaited.
5. File. The invoice, packing list, transport document (bill of lading, CMR or AWB), policy and damage report are assembled.

After the insurer pays the compensation, it has recourse against the carrier; that is, it claims from the carrier the part for which the carrier is liable.

Common mistakes

• Assuming insurance under CIF is full cover. The minimum cover under CIF is Clause C; it does not cover wetting and breakage.
• Understated value declaration. The premium falls, but compensation in the event of damage falls by the same proportion.
• Not entering a reservation on delivery. Proving damage later becomes difficult with a document stating “received in good condition”.
• Neglecting packaging. Damage caused by inadequate packaging is an exclusion in most policies.
• Forgetting the storage period. The policy’s cover may end if the cargo waits at the place of delivery for more than a certain period; if a long wait is foreseen, the period should be extended.

Legal basis

• Turkish Commercial Code No. 6102 art. 882 (road liability limit) and art. 1186 (sea liability limit)
• Insurance Law No. 5684 art. 15 (insurance that may be taken out abroad)
• Texts: mevzuat.gov.tr